NASDAQ to pay huge penalty for failures in Facebook IPO

WASHINGTON, USA: NASDAQ has agreed to pay a penalty of $10 million, the largest ever against a stock exchange, for violating securities laws in the Facebook initial public offering (IPO) last May, the Securities and Exchange Commission (SEC) has said in a statement.

The SEC on Wednesday cited the second-largest US equity market for its "poor systems and decision-making" during the Facebook IPO in May 2012, reported Xinhua.

Exchanges have an obligation to ensure their systems, processes, and contingency planning are robust and adequate to manage an IPO without disruption to the market.

According to SEC's statement, despite widespread anticipation that the Facebook IPO would be among the largest in history with huge numbers of investors participating, a design limitation in NASDAQ's system to match IPO buy and sell orders caused disruptions to the Facebook IPO.

But NASDAQ's senior leadership decided to initiate trading before fully understanding the problem, which then caused violations of several rules, including NASDAQ's fundamental rule governing the price-time priority for executing trade orders.

The problem caused more than 30,000 Facebook orders to remain stuck in NASDAQ's system for more than two hours when they should have been promptly executed or canceled.

"Too often in today's markets, systems disruptions are written off as mere technical 'glitch' when it's the design of the systems and the response of exchange officials that cause us the most concern," said Daniel Hawke, chief of the SEC Enforcement Division's Market Abuse Unit.

Wall Street firms handling Facebook orders in the IPO claimed an estimated $500 million in losses linked to the design flaw in NASDAQ's system. The settlement was in addition to NASDAQ's proposal to pay $62 million to compensate brokers that took losses trading in the Facebook debut.